WASHINGTON, Oct 21 (Reuters) - Venezuela’s finances may quickly collapse if international oil prices stabilize, as revenues of state-owned PDVSA are falling while its costs are on the rise, according to the head of Harvard’s Center for International Development.
“You don’t need to wait for lower oil prices to see Venezuela crash. A stable oil price will do it, you just have to work yourself for 12 months,” professor Ricardo Hausmann told Reuters in an interview on the sidelines of a seminar organized by Deutsche Bank.
Hausmann, who served as planning minister for Venezuela between 1992 and 1993, argued that while PDVSA’s oil production declines, internal oil consumption is increasing rapidly.
But gasoline prices in Venezuela are subsidized by the government of President Hugo Chavez, who allows Venezuelans to fill up the tank of their cars for less than $2. Moreover, the Venezuelan currency is fixed at an official rate of 2,150 to the dollar, well below the parallel market level of 5,800 per greenback.
“So if you are substituting exports for domestic sales, that has a huge impact on PDVSA,” the professor said, adding that the production costs of the Venezuelan oil industry is also rising fast.
Early this month, Venezuelans formed long lines to buy gasoline in a major provincial city after outages at a refinery prompted rare worries of supply shortages in the country.
“The surplus of PDVSA dwindles very quickly if you assume that international prices remain constant,” Hausmann said. “It doesn’t take too long for this mechanism to erode up the surplus with which the whole expansion has been funded.”
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